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Do you have employees who are currently overtime exempt making under $50,000 per year, who play an important role in your organization, but you can’t justify paying a higher salary to avoid having them becoming nonexempt under the proposed overtime regulations? Consider these options for the future:

Pay them by the hour. Take the easy, but potentially more expensive way out, and simply convert the employees to hourly pay status and pay them overtime (time and 1/2 the regular rate) after 40 hours of work. However, be careful of the increasing number of state and local laws that set higher minimum wages than federal law, and may have differing overtime pay requirements.

Consider using a fluctuating work week salaried (FWW) pay plan. Under an FWW pay plan you pay a set weekly salary and then overtime after 40 hours but the overtime rate is at 1/2 the regular rate instead of time and a half. You have to determine the regular rate each week—based on the number of hours worked. However, if an employee works any hours at all in a work week, you must pay the entire base salary for that week. An employer cannot use a traditional sick-leave pay plan (e.g., limited to 10 or 15 days per year). Since 2011 regulations placed additional restrictions on FWW pay plans, prohibiting any additional forms of traditional performance or incentive bonuses, they have become dangerous pay plans to try to use.

Consider a day rate. Perhaps the closest method of payment to the typical weekly salary is a day rate. It is a hybrid between a straight weekly salary for exempt employees and the FWW pay plan (which is also salary-based), resulting in half-time overtime pay. The day rate plan has the advantage of not having to determine if an individual is truly exempt in performing their duties. It also avoids the downside of an FWW pay plan in that if an employee doesn’t work a day, then you don’t have to pay them for that day. However, it still provides additional incentive if they have to work an extra day. Employees will usually look at their net take home pay to judge how well they are doing.

Bottom line, an employer can come close to controlling its overall labor costs by considering and adjusting the method of payment which best suits their organization’s type and hours of work. Instead of despair over the coming salary increases, maybe it’s time to think outside the box.

Compare jurisdictions: Employment & Labor: International

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